Course 302: The Balance Sheet
Noncurrent Liabilities
In this course
1 Introduction
2 Assets, Liabilities, and Equity--It All Equals Out
3 Current Assets
4 Noncurrent Assets
5 Current Liabilities
6 Noncurrent Liabilities
7 Equity
8 The Bottom Line

Noncurrent liabilities are the flip side of noncurrent assets. These liabilities represent money the company owes one year or more in the future. Although you'll see a variety of line items in this category, the most important one by far is long-term debt.

Long-Term Debt. This represents money the company has borrowed, typically by issuing bonds, that doesn't need to be paid back for several years. Too much long-term debt is generally risky for a company, because the interest on debt must be repaid no matter how the business is doing. Determining how much debt is too much is very firm-specific and depends on many things including the interest rate a company pays on its debt, and the stability of the firm's earnings and cash flows. One good way to determine if a company can afford the interest payments on its debt is to see how many times the firm's operating income--otherwise known as income before interest and taxes (EBIT)--will cover its interest expenses (interest coverage ratio).

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